Supreme Court holds that the participation in tender as mandatory to exercise the Right of First Refusal

The Litigation team of Singhania & Partners LLP, comprising of Mr. Ravi Singhania, (Managing Partner), Ms. Madhu Sweta (Partner) and Ms. Kanika Tandon (Associate) have successfully obtained a favorable judgment in favour of National Highways Authority of India (NHAI) in the Supreme Court (SC) in the matter of NHAI v. Gwalior Jhansi Expressway Ltd[1], which holds that the right to exercise ‘Right of First Refusal (ROFR)’ by any Contractor would come into play only if he participates in the tender process pursuant to notice inviting tenders from other interested parties.

While the rational and analysis in the judgment makes for a very interesting read, in this update, we have attempted to focus only on the impact of “Right of First Refusal” and its impact on Contractors and the potential impact on the Government Bodies who engage in the issuance of such tenders.


The SC in the aforesaid case had the opportunity to pen down the rules and directions that govern a Contractor’s ‘Right of First Refusal’ in a tender process. The Supreme Court relied on the principles laid down in VHCPL-ADCC Pingalai Infrastructure Pvt. Ltd. & Anr v. Union of India & Ors[2], in relation to the consequences of non-participation by a Contractor in the tender process and yet exertion of ROFR. It ruled that, having failed to participate in the tender process and, more so, despite the express terms in the tender documents, whose validity whereof has not been challenged, the Contractor cannot be heard to contend that it had acquired a ‘Right of First Refusal’ in the tender process. Only those entities who participate in the tender process pursuant to a tender notice can be allowed to make grievances about the non-fulfillment or breach of any of the terms and conditions of the concerned tender documents.


NHAI, entered into a Concession Agreement (dt. 17.12.2006) with the Contractor (Gwalior Jhansi Expressway Ltd.)  for widening of two-lane portion on NHA-75 to four lanes in the State of Uttar Pradesh and Madhya Pradesh.

Owing to delayed progress and eventual abandonment by the Contractor, the Appellant (NHAI) terminated the Agreement. Disputes arose, and the matter was referred to Arbitration. The Contractor during the pendency of the Arbitration proceedings, moved a Section 17 application of the Act[3],wherein it prayed that either (A) NHAI should infuse a sum of Rs. 400 Cr so as to complete the balance works of the project , or (B) as an interim measure, NHAI shall be allowed to invite tender/bid for executing the balance work under the Concession Agreement, subject to the Contractor being granted the right of first refusal for matching the lowest bid, and in the event, the Contractor matches the lowest bid, the Contractor being allowed complete the said balance works on the terms and conditions of the tender/bid invited.

In consonance with prayer B, NHAI issued a tender for balance work vide a Notice Inviting Tender dt. 28.11.2016 which was brought to the notice of the Contractor and Arbitral Tribunal on 10.12.2016.Despite such Notice by NHAI which was readily available in public domain, the Contractor willingly chose to abstain itself from participating in the tender. Technical bids and Financial bids were opened by NHAI on 05.01.2017 and 29.03.2017 respectively. It was only after 25.04.2017, that the Contractor moved another application u/s 17 seeking permission from the Arbitral Tribunal to complete the balance work and prayed for exercising the option of ROFR.

The Arbitral Tribunal decided the said Section 17 application in favor of the Contractor on the ground of equity without no plausible explanation vide its order dated 14.05.2017, which was challenged by NHAI under Section 37(2)(b) before the High Court of Delhi. The Delhi High Court dismissed the appeal of NHAI and upheld the view of the Arbitral Tribunal. Upon dismissal of the said appeal by the Delhi High Court, NHAI preferred an appeal before the Supreme Court.


The issue before the Supreme Court related to the rights and liabilities of the parties in respect of a tender process for awarding of a contract in relation to the unfinished and balance work of the Highway Project. The plain wording of the eligibility clause in the tender documents and incidental stipulations make it explicit that the Contractor was obligated to participate in the tender process by submitting its sealed bid (technical and financial) in order to exercise the option of ROFR. The Contractor who chose to stay away from the tender process, cannot be heard to whittle down, in any manner, the rights of the eligible bidders who had participated in the tender on the basis of the written and express terms and conditions.

The contention of the Contractor was based on the premise that in view of Prayer (B) of the Application advanced by the Contractor, the Contractor was exempted from participating in the proposed tender process and yet it could still exercise ROFR before the letter of intent was issued to the lowest bidder.

The SC rejecting such contention of the Contractor has held that, having failed to participate in the bidding process in consonance with the terms and conditions, the Contractor has lost its opportunity to  match the lowest bid or exercise ROFR. In the matter of tender process, there can be no tacit or implied exemption from participation. An entity who stays away from the bidding process and fails to comply with the express terms and conditions of the tender, cannot claim any right to match the lowest bid or exercise ROFR.

The High Court overlooked the fact that the tender process was not an empty formality and with the initiation of the same, third parties, who participated in the bidding process, were likely to be prejudiced by allowing the Contractor to match the lowest bid, or exercise ROFR, without participating in the bidding process despite the express stipulations in that behalf in the tender documents. The High Court committed the same error as committed by the Arbitral Tribunal in not examining the core issues for grant or non-grant of such relief to the Contractor, in conformity with the fundamental policy of Indian Law.


The SC has interpreted and held the importance of ROFR with respect to tender processes and has highlighted the prominence of participation as a mandatory requisite to exercise such options. The Claims concerning the said dispute qua NHAI were worth a value of approximately Rs.1700 crores (USD 255 million).

[1] Civil Appeal No. 3288 of 2018, dated 13.07.2018

[2] 2010 SCC Online Del 2687

[3] Arbitration and Conciliation Act, 1996.

India Competition Regulator Has Eye on Uber, Ola

(As appeared in Bloomberg BNA)

India’s competition regulator is keeping an eye on app-based ride-hailing services Uber Technologies Inc. and its native rival Ola for possible collusion to harm competition, but complainants so far haven’t proved their case. Yet.

Antitrust attorneys told Bloomberg Law that the taxi company that brought several complaints to the government needs a better understanding of India’s antitrust law and actual evidence that the two ride-hailing companies are deliberately trying to stamp out competition.

But India’s regulator, in its June 20 opinion about the taxi company’s complaints, laid out its thinking on how collusion and dominance can cause anticompetitive harm, signaling that competition officials are aware of the problem and questions that might arise from shareholders who buy stakes from several competitors in a given industry.

The Competition Commission of India dismissed complaints that Uber and Ola, which have common investors such as Tiger Global Management and DidiChuxing, abused their market dominance individually and collectively.

There was no evidence that the two companies’ common investors caused anticompetitive behavior, the commission said.

Going forward, complainants must “provide explicit proof to create justifiable doubt in the commission’s mind that there has been an intent to harm competition or to collude,” Abhishek Kumar, associate partner at Delhi-based Singhania & Partners, told Bloomberg Law.

But competition officials “will keep a close watch” on Uber and Ola because the “potential effect of common shareholdings on competition, either by affecting unilateral horizontal incentives to compete or through incentivizing collusive behaviour, cannot be completely ruled out,” the commission said.

“Though there is currently no evidence that these anticompetitive harms have played out in the market, the commission will not hesitate in taking appropriate action under the act if an inquiry reveals compelling evidence of the anticompetitive effects of common ownership by institutional investors in concentrated industries,” the opinion said.

No Collective Dominance
India’s radio cab service Meru asked the commission to investigate several allegations against Uber and Ola in four large-city markets. The complaints said Uber and Ola were each individually dominant in the ride-hailing market and abused that dominance and that they also colluded with each other to maintain dominance. The common shareholders enabled Uber and Ola to indulge in anticompetitive behavior, the cab service said.

The regulator said there was no basis, based on the statements in complaints, to order an investigation.

The allegation that the common shareholders in the two companies led to anticompetitive behavior was “misplaced,” Anupam Sanghi of Delhi-based Anupam Sanghi and Associates told Bloomberg Law, because India’s Competition Act of 2002 has no provision for collective dominance. The statute’s language on dominance refers only to enterprises that are controlled by the same management or equity shareholders, not independent corporate entities such as Uber and Ola.

The commission said there was no evidence of shareholders’ common control of Uber and Ola. SoftBank Group Corp., for instance, is a minority shareholder in both Uber and Ola. SoftBank owns about 15 percent of Uber and has the right to appoint just two of 17 directors on its board, according to the commission. The test for “control” under the Competition Act “is not met,” the opinion said.

The commission also dismissed Meru’s complaint that Uber and Ola were engaging in predatory pricing practices such as below-cost pricing and offering unfair incentives for drivers. A large market share alone does not indicate anticompetitive behavior, the regulator said.


Funding of Indian subsidiaries

Liberalisation in India has resulted in significant inbound foreign investment. As Indian operations of foreign businesses grow, foreign shareholders grapple with the best ways to finance these operations and repatriate some of the profits – partly due to the Indian regulatory system, which strictly regulates capital account transactions. This article examines some key ways of financing Indian operations of foreign shareholders. But it will depend on the specific circumstances in each case to determine which option is best suited for a particular Indian subsidiary.

Investment through shares and convertible instruments. Foreign companies can finance their subsidiary’s operations through investment in shares and convertible instruments. The law allows investment through equity shares, compulsory convertible preference shares, compulsory convertible debentures and warrants.

The investment in the aforesaid instruments is treated as capital investment by the foreign investment law of India, but such capital investment is subject to certain conditions including: (1) Restrictions on the level of capital investment in specified sectors, e.g., permissible capital investment in multi-brand retail is up to 50%; (2) the need to specify the manner of pricing the instrument to ensure that the instrument is not issued/transferred at a lower price than its fair market value (pricing compliance); (3) a specified time for the allotment of such instruments; (4) reporting such capital investment within a specified timeline.

For example, when a foreign shareholder wants to fund its subsidiary for working capital needs, the foreign shareholder may want to evaluate, prior to the capital investment, the pricing compliance. Considering the pricing compliance mandates that the instrument not be issued at a price lower than its fair market value, the foreign shareholder will need to evaluate whether such pricing compliance will result in the capital investment being much more than what is needed.

However, there are some exceptions to the pricing compliance for a private company or a public unlisted company, e.g. issuing the instrument through a rights issue. Instruments issued through a rights issue can be issued at a price similar to the price offered to an Indian shareholder. For a wholly owned subsidiary of a foreign shareholder, however, this exception may need to be examined given that the subsidiary may not have an Indian shareholder.

Considering the above, capital investments may not always be the optimum method for funding as foreign shareholders may not want to lock in huge capital for inordinately long periods. Further, repatriation of profits from such subsidiaries has certain restrictions under applicable law and is coupled with attendant tax leakages.

External commercial borrowings. A foreign shareholder can also fund through debt. However, third party loans are costly in India compared with borrowing overseas and are not easily available. But there are some viable debt alternatives that foreign parents can explore to finance their Indian subsidiaries, earn some interest and recover the money in due course.

Under the applicable law, an Indian subsidiary can raise debt from its foreign shareholder by way of external commercial borrowings (ECBs). In this context, a direct foreign equity holder with minimum 25% direct equity holding in the Indian subsidiary, an indirect equity holder with minimum indirect equity holding of 51% in the Indian subsidiary, or a group company with a common overseas parent, is permitted to provide an ECB to its Indian affiliate. The borrowings may fall under any of the three categories – either with or without approval of the central bank (RBI) – depending on the business of the Indian subsidiary, the end use of the ECB proceeds, the currency of borrowing and the average tenure of the ECB. Further, the applicable law stipulates that the Indian subsidiary is to maintain a debt equity ratio of 7:1. However, this ratio is not applicable if the total of all ECBs raised by an Indian entity is up to US$5 million or equivalent.

While the applicable law requires RBI approval for ECBs not satisfying certain conditions set out under the relevant regulation, such approval may be time consuming and may not meet the immediate needs of the Indian subsidiary.

Masala bonds. In September 2015, the RBI permitted Indian corporates to issue rupee-denominated bonds (nicknamed Masala bonds) under the ECB regime. The Masala bonds regime is more liberal than the ECB one. The pool of lenders is increased and any person from a Financial Action Task Force compliant jurisdiction can subscribe to such bonds. The requirement of holding a minimum equity percentage as per the ECB guidelines for foreign equity holders is not applicable, and an equity holder with less than 25% equity in the Indian company would also be eligible to subscribe to such bonds.

Non-convertible debentures. Another avenue available is the corporate debt market. A group company of a foreign shareholder can register as a foreign portfolio investor (FPI) under the Securities and Exchange Board of India’s prescribed regulations. The registration process is straightforward and typically an FPI registration can be completed within a few weeks. An FPI is permitted to invest in listed or unlisted non-convertible debentures (NCDs). The minimum residual maturity of such NCD’s should be one-year subject to certain conditions set out under the applicable law. The NCDs can be secured or unsecured. The issuer has considerable flexibility on how to use the proceeds and the amount of interest or redemption premium to be paid on such instruments.

This route has been used amply, especially by foreign funds, to finance Indian portfolio companies. This option provides more flexibility than the ECB option in raising funds from foreign shareholders. However, there would be certain disclosure requirements that need to be considered.

By way of business arrangements. Today a good number of Indian subsidiaries, commonly in the IT sector, have been set up to provide services only to its foreign shareholder based in a jurisdiction outside India. These Indian subsidiaries enter into service arrangements with its foreign shareholder and receive funds as part of their business income for providing services to such shareholder. The applicable law does not stipulate a cap on funds received from a foreign shareholder as part of a service contract between the Indian subsidiary and the foreign shareholder. Therefore a foreign shareholder can raise funds for its subsidiary through such an option. However, certain tax implications, such as transfer pricing, may need to be examined.

( This article authored by Ravi Singhania, Managing partner and Arjun Anand, Partner is republished here after publication in China Business Law Journal)

Forex management in cross-border mergers

India’s companies law currently allows Indian companies to merge with foreign companies and vice-versa. Further, on 20 March 2018, the government notified the Foreign Exchange Management (Cross-Border Merger) Regulations, 2018, which attempt to provide clarity regarding cross-border mergers from a foreign exchange law perspective. With that background, this article examines the key aspects of the merger regulation and its implications.

Inbound mergers

An inbound merger is when an Indian company (IC) acquires the assets and liabilities of a foreign company consequent to a cross-border merger. In this regard, the merger regulations are allowing the transfer of securities to a foreign shareholder, subject to the compliance applicable to a foreign investor under the foreign direct investment (FDI) regulations.

This effectively means that such cross-border mergers must not result in any contravention of any restriction applicable to FDI into India as per the FDI regulations. Illustratively, an IC cannot issue shares, as a result of a cross-border merger, to a person resident outside of India if such IC is engaged in a sector prohibited for investment under the FDI regulations.

Similarly, the merger regulations have stated that a cross-border merger resulting in the transfer of securities of a joint venture (JV), or a wholly owned subsidiary of an IC, situated in a foreign jurisdiction, must be subject to compliance such as pricing of shares in a specified manner, any outstandings owed to the IC being clear prior to such transfer, etc., set out under the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, (2004) (ODI regulations).

Further, the merger regulations mandate that if the cross-border merger results in the acquisition of a stepdown subsidiary (situated in a foreign jurisdiction) of the JV/wholly owned subsidiary, by an IC, then certain additional conditions laid down in the ODI regulations will need to be complied with.

One such conditions requires inter alia the IC to: (1) be regulated by a financial sector regulator; or (2) have earned net profit during the preceding three financial years from financial services activities, if such stepdown subsidiary (situated in a foreign jurisdiction) is engaged in the financial sector.

The merger regulations have also stipulated certain compliances for ICs on overseas borrowings to be acquired by the IC in connection with such cross-border mergers. One such compliance requires the IC to ensure that the overseas borrowings of the foreign company that it proposes to take over are compliant with the provisions of the overseas borrowing regulations under Indian law within a period of two years from the date of sanction of the scheme pertaining to such cross-border merger by the relevant authority.

However, the IC cannot remit any money from India for repayment of such overseas borrowings, as part of ensuring compliance with the overseas borrowing regulations, during such a two-year period. It is to be noted that the overseas borrowing regulations inter alia stipulate specified interest rates, maturity, and end-use restrictions on borrowings from overseas by an Indian company. However, end-use restrictions are not applicable to an IC per the merger regulations.

While the intent is to ensure a smooth transition, it may possibly bring the relevant parties to the drawing board as the interest rates and maturity, etc., stipulated in the overseas borrowing regulations may not tie in with the commercial intent of such borrowings. Secondly, the restriction on repayment of such overseas borrowings during the two-year period may create hurdles for the cross-border merger.

Outbound mergers

An outbound merger is exactly the opposite of an inbound merger, i.e. a foreign company (FC) acquiring the assets and liabilities of an IC. While it is assumed that the law applicable in the jurisdiction where the FC is situated will regulate such a cross-border merger, the merger regulations also stipulate certain conditions such as guarantees or outstanding borrowings of the IC which must, as a result of such cross-border mergers, become guarantees or borrowings of the FC.

This, however, is subject to the FC not acquiring any such guarantee or outstanding borrowing in rupees payable to Indian lenders non-compliant with the relevant foreign exchange law in India. Considering rupee borrowings by Indian entities from Indian lenders may not always be compliant with applicable law, such a restriction will need to be examined by the FC from a balance sheet perspective.


This notification will help enable companies to consolidate and restructure their businesses in the most efficient and business friendly manner. However, the challenges discussed above may need to be ironed out by the relevant regulators.

(This article authored by Ravi Singhania, Managing partner and Arjun Anand, Partner is republished here after publication in Asia Business Law Journal)

Ministry of Shipping sets Sagarmala Programme in motion by empaneling law firms

Sagarmala Programme of Ministry of Shipping, Government of India will partake investments of approximately US$ 123.08 billion (INR 8 Lakh Crore) in the area of port modernization, new port development, port connectivity enhancement, port linked industrialisation and   coastal community development over the period 2015 to 2035. According to a Press Information Bureau release, as per the approved implementation plan of the programme, the 415 projects under Sagarmala are to be taken up by the central line ministries, state governments / maritime boards and SPVs, preferably through the private sector and Public Private Participation (PPP) wherever feasible. Out of 415 projects under the umbrella of Sagarmala, 199 focus projects are to be taken up during the Financial Years 2016-17 to 2018-19.

This ambitious programme of Government of India involves setting up of mega ports, Coastal Economic Zones, development of Port-Linked Industrial Clusters, Coastal Economic Unites and Export Oriented Units etc. to develop Indian coastline as Coastal Economic Regions across 14 regions in India. With a renewed focus  of the ministry on the programme, the Ministry of shipping is setting up the ground work and has hired some of the prominent Indian law firms to assist in the implementation of the various projects.

Singhania & Partners is one of the select few firms that has been empanelled as the legal advisors under this programme. According to the Managing Partner, Ravi Singhania, “ The firm will be assisting the ministry as legal counsels in the area of legal due diligence, drafting of transaction documents and advise/assistance in negotiation of the contracts with the SPVs.  We are confident to add a lot of value in our role as we are also legal advisors to Indian Railways, Gujarat Maritime Board, ISGEC Heavy Engineering Ltd, Ministry of Road Transport and Highways, National Highways Authority of India, Power Finance Corporation, Rural Electrification Corporation, Karnataka State Highways Improvement Project (KSHIP), National High Speed Rail Corporation Ltd.(NHSRCL), IJM Corporation, Berhad, Mumbai International Airport Ltd., Punj Lloyd and India Posts Payment Bank. Etc.”

Singhania’s team successfully contested the claims on payment of gratuity

A team led by Vikas Goel (Partner),  Sunil Kumar and assisted  by Kunal Dutta (Principal Associate) was successful in contesting the claims on payment of gratuity by an ex-employee of UK  based leading Publishing House . The ex-employee of this company of international repute, demanded payment of gratuity after full and final settlement. The Controlling Authority allowed the claim nearing Rs. 2 crore but the Appellate Authority modified the order of the Controlling Authority and confined the entitlement of the employee to Rs. 10 lakhs i.e maximum amount of gratuity payable to any employee under the Payment of Gratuity Act, 1972 with interest of 10% p.a.